RIA Compliance Blog
On October 2, 2017, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Tweed Financial Services, Inc. (“TFSI”), an investment advisory firm, and its proprietor, Robert Russel Tweed (“Tweed”). The SEC’s complaint alleges that TFSI and Tweed “defrauded their clients by misleading them about how their money had been invested and how poorly those investments were performing.” According to the SEC, TFSI and Tweed violated the Investment Advisers Act of 1940 by deceiving their clients.
According to the SEC’s complaint, TFSI and Tweed formed Athenian Fund L.P., a private fund, in 2008. Twenty-four investors placed money in the Athenian Fund, and the fund raised approximately $1.7 million. The Athenian Fund’s private placement memorandum informed investors that money invested in Athenian Fund would be invested in a master fund that “had been established to trade stocks using an algorithmic trading platform developed by acquaintances of Tweed.” However, beginning in March 2010, Tweed transferred all of the Athenian Fund’s assets to another fund. In March 2011, TFSI and Tweed had the Athenian Fund loan $200,000 to a startup software company. The SEC alleged that these two ventures resulted in the Athenian fund losing approximately $800,000.
The SEC’s complaint also alleges that from 2012 to 2014, TFSI and Tweed published account statements that misrepresented the Athenian Fund’s profitability. These account statements allegedly made representations that the Athenian Fund was receiving positive returns when in fact the Athenian Fund’s investments were really losing money. The Athenian Fund’s quarterly account statements also did not inform investors that the “Net Income/ Loss” and “ROI (Return on Investment)” values had been determined using “estimated” asset valuations, which comprised the main investment amount and accrued interest from two investments that did not pay returns on time.
The complaint also alleges that Tweed took certain steps to prevent investors from discovering the Athenian Fund’s losses. For example, from 2010 through 2012, Tweed permitted ten investors to make redemptions. These investors obtained more money that what they were entitled to take because the Athenian Fund’s performance centered around inflated asset values. The complaint also alleges that from 2010 to 2013, Tweed did not provide the Athenian Fund investors with annual audited financial statements, despite the fact that the fund’s offering documents provided that the investors would receive such statements. In 2014, after a state regulator sent Tweed a deficiency letter inquiring about the lack of audited statements, Tweed retained an accountant to perform audits. However, Tweed still did not provide investors with audited financial statements.
The SEC’s complaint requests that the court issue injunctions against TFSI and Tweed forbidding them from committing further violations of the Advisers Act. The complaint also requests that the court order TFSI and Tweed pay civil penalties.
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